Audio 3:16
JP Morgan to pay for its role in the 2007 housing finance crisis

Ben KnightUpdated
Mon 21 Oct 2013, 8:30 AM AEDT

America's biggest bank has reportedly agreed to pay a massive $13 billion in fines and compensation for its role in the housing finance crisis of 2007. News agencies in the US say JP Morgan Chase has reached a tentative agreement with the Department of Justice and that final details are now being hammered out.

Transcript

TONY EASTLEY: America's biggest bank has reportedly agreed to pay a massive $13 billion in fines and compensation for its role in the housing finance crisis of 2007.

News agencies in the US say JP Morgan Chase has reached a tentative agreement with the Department of Justice, and that final details are now being hammered out.

Just last month JP Morgan was fined $1 billion over an incident in London where one of its traders went rogue and racked up $6 billion in losses.

Correspondent, Ben Knight in Washington.

BEN KNIGHT: The crisis of 2007 trashed the reputations of some of Wall Street's biggest stars - but not JP Morgan Chase.

(Excerpt from promotional video): For thousands of people every day, we are more than skyscrapers and investments.

BEN KNIGHT: They came out of the crisis better than many competitors. They had a reputation for being particularly good at risk management, which the bank trumpeted in this promotional video back in June.

(Excerpt from promotional video): We have an accountable culture, responsible culture, a courageous culture, a culture with spine and courage. And that's a culture you can feel proud of.

BEN KNIGHT: But at the time it released that video, JP Morgan knew that it was in deep trouble with regulators over its role in the financial crisis.

What JP Morgan Chase was doing was similar to what many other banks were doing - bundling up mortgages into a package, and selling them as bonds to investors.

The problem, of course, was that a lot of those mortgages had been given to people with little or no ability to pay them back.

When the housing crash happened, those mortgage-backed securities became toxic assets.

What JP Morgan is alleged to have done is sell its packages of mortgages to investors knowing that many of the home loans they contained were extremely risky.

There's been continuing anger in the US that no Wall Street high flyers ever went to jail over the financial crisis or were held accountable for the massive bailouts their institutions received in order to stay afloat.

But last year, the Obama administration set up a taskforce to investigate wrongdoing by banks over mortgage-backed securities.

And JP Morgan was in their sights.

Last month JP Morgan's chief executive, Jamie Dimon, met with the attorney general, Eric Holder, for talks. Eric holder wouldn't confirm what they were discussing but he did sound this warning.

ERIC HOLDER: This is something that is a priority for this justice department to hold accountable people who would manipulate, companies that would manipulate our financial markets for their own customers' benefit or for the benefit of the companies.

BEN KNIGHT: It's understood the bank's $13 billion settlement - which would be a record penalty - is comprised of $9 billion in fines, and $4 billion in assistance to struggling homeowners caught out by the crisis.

But it's also understood that this deal would only wipe the bank's slate clean when it comes to civil claims. It does not absolve it from any criminal prosecutions that may come.

The bank has just posted its first quarterly loss since 2004. It's made no statement on any potential deal or penalties - but it has said it holds $23 billion in reserves to cover potential legal costs.